This article is an introduction to the concept of compound interest, for an extensive understanding and how to build this into your financial plan, please contact a financial advisor.
Compound interest is a powerful financial concept that can significantly contribute to building wealth over time. It is the process by which interest is earned on both the initial principal amount and any interest that has been previously accumulated.
Compound interest is calculated using the formula:
A = P(1 + r/n)^(nt)
Ais the future value of the investment
Pis the initial principal amount
ris the annual interest rate (as a decimal)
nis the number of times interest is compounded per year
tis the number of years
The more frequently interest is compounded, the greater the overall return on investment.
The key to building wealth using compound interest lies in three main factors:
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